High Court quashes demand for solicitor to pay £150,000 ARP premium

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By Legal Futures

19 September 2012

High Court: evidence of the contract was not very satisfactory

A solicitor has successfully challenged a demand to stump up nearly £150,000 in unpaid assigned risks pool (ARP) premiums.

On appeal to the High Court, Ariel Zeckler was able to show that the ARP’s manager, Capita Commercial Services, had not established that he was personally liable for the debt of the LLP in question.

Mr Zeckler was a partner of Zecklers LLP with his brother until September 2010, and faced a statutory demand for £147,490 due from the LLP in respect of ARP cover. It was upheld at first instance by the Chief Bankruptcy Registrar, Stephen Baister.

Before Nicholas Strauss QC, sitting as a deputy judge of the Chancery Division, Mr Zeckler argued that there was no contractual relationship between him personally and Capita. The judge said that evidence adduced by Capita about the contract was “not very satisfactory… No cover note or policy is in evidence: there is simply no evidence as to the terms of, or parties to, the contract of insurance”.

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Capita relied on the argument that solicitors are bound by their professional rules and in this case particularly rule 10.3 of the Solicitors Indemnity Insurance Rules 2009, which provided that by applying to enter the ARP, the firm and all principals agreed to be jointly and severally liable to pay the premium.

Mr Strauss said: “The starting point is that professional rules would not normally be incorporated into a contract unless the contract expressly says so. What one would expect to find here is something in the contractual wording which makes it clear that the members of the limited liability partnership are parties to the contract, and are obliged to pay the premiums…

“However, in this case, there was no evidence before the Chief Registrar, and there is no evidence before me, of any such contractual provision, and that is the difficulty.”

The judge accepted that it was arguable, even in the absence of any express contractual term, that there was an implied contract between the principals of the firm and Capita, and also that such a contract was imposed by the combined effect of the Solicitors Act 1974 and the indemnity rules. “But I am far from convinced that either argument is correct,” he concluded.

As a result, he held that there was a genuine dispute as to the existence of the debt and that the statutory demand should be set aside. He declined to decide the point because of the lack of evidence and limited argument on it, but added that Capita “is free to bring proceedings against Mr Zeckler to establish the position, if it wishes to do so”.

A Solicitors Regulation Authority spokesman said: “We will be looking at the judgement handed down and considering our next steps in the legal process, which could involve an appeal. We will assess the implications of this with Capita before moving forward.”

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